A variety of factors have paved the way for a strong season for M&A in banking, allowing companies to prepare themselves for growth and consolidation. Pierre de Raismes, a partner in Bain's Financial Services and Mergers and Acquisitions practices, describes what will define winning banks and four trends that could shape banking M&A in the coming months.
Making the Most of Banking’s M&A Season
Unlike other industries, regulators are encouraging industry consolidation.
Read a transcript of the video below:
PIERRE DE RAISMES: I'm very optimistic for M&A in banking in 2021. All the conditions are there to see an uplift in M&A. First, valuations have dropped significantly, and we've seen a decrease by 35% of the valuation of the different banks in the world.
We've seen as well an increase in the cost of risk and more and more pressure on costs. And we've seen as well regulators pushing for more consolidation in the banking industry. The domestic consolidation will be more and more popular as scale becomes more and more important for banks to be competitive. And so they will come together in order to be able to mutualize their investments and to be able to benefit fully from scale effect.
Another big trend for 2021 will be scope deals (banks looking to acquire new capabilities or to enter new customer segments or new geographies). Divestiture will be very powerful because more and more banks are under pressure, and they have to review the portfolio and potentially make some arbitrage on the activities that are nonprofitable on the core. And they will divest those activities more and more.
Cross-border in banking has been a big discussion over the past years. We expect that Covid-19 probably will be a trigger in order to push some of these large moves. The winning banks are the ones that are acting more and more like professional investors, such as private equity funds. They excel at due diligence, reviewing the potential synergies, but as well anticipating how customers behaviors will shift, triggered by Covid-19, and anticipating as well additional risk from the Covid-19 impact on the current economy.
Global M&A Report 2023
Bain’s fifth annual Global M&A Report examines the ups and downs of 2022 and the bold moves companies across all sectors can take to win in 2023 despite macroeconomic turbulence.